Was record-keeping so poor it opened the door on anarchistic accounting practices and even a risk from potential corruption?

Tucked away near the back of a report published this month by the National Audit Office are some remarkable words.

They refer to £161m that was spent on a Home Office IT-based project, C-Nomis, which was to provide a single database of offenders, to be accessed by prison and probation officers.

The NAO said: “We have not been able to ascertain precisely what this money spent on …” The Home Office had not kept proper records on the C-Nomis project, said the authors of the report.

Any disinterested reader of the NAO report is entitled to ask whether the Home Office has opened the door on anarchistic accounting practices and even a risk from potential corruption.

How it is possible, within the age-old machinery of government, for £161m to be spent without proper records being kept, such that auditors have to speculate on where the money went?

We “believe”, said the NAO, that “most” of the £161m was spent developing the software and testing it in prisons. But it does not know for certain.

The report’s authors were unable even to “determine the full value of the waste and inefficiencies associated with the failure of the C-Nomis project with certainty because of NOMS’ poor recording of costs”. Noms is the National Offender Management Service.

The audit office found that “major decisions” were taken without proper authority; there was no specified budget for the project; roles and responsibilities were blurred; there were no formal controls on changes to the contract and initially no penalties on the supplier for late delivery.

There was no overall plan for co-ordinating the work of up to 40 different workstreams, and a contract was awarded to the supplier without any specific, open competitive tender.

There was a “vacuum of leadership” said the NAO. The Project Board “did not discuss programme finances” until three years after the start of the scheme. Even when formal controls were introduced later, they were not routinely followed, said the NAO.

Vacancies on the project went unfilled; many members of the project team were “expensive” contractors; a dedicated financial controller was not appointed for three years; and the National Offender Management Service did not produce a map of the project’s organisational structure, business processes, people, information systems and data, as recommended in Office of Government Commerce guidance.

So bad was the record keeping that internal audit wasn’t able to establish how many change requests had been made in 2005.

Breakdown of relationship with supplier

Against this devastated landscape it seems almost trivial to mention that the NAO also found that relationships between NOMS and the supplier broke down, largely because there were long delays in decisions being taken by the Home Office. It didn’t help that members of the board of NOMS believed the supplier’s staff were not of the “necessary quality”.

Are things better now?

Since the project was taken over by Jack Straw’s Ministry of Justice in 2007, there have been improvements.

But the NAO still finds some surprising lapses: information on the expected cost and time-to-completion of C-Nomis was “missing” – in other words the information one would expect to be depicted in lights on any large IT-based business change project or programme.

With characteristic reserve the NAO says of the information that’s missing: “Without this information the Project manager cannot identify where money has been spent or what has, or is, to cost more than planned.”

Even today the Ministry of Justice relies on “unvalidated cost figures”.

And the project will not fulfil its purpose. The NAO says: ” the key aim of creating a single database of offenders directly accessible by prison, probation and third-party intervention providers …will not be met”.

How good are Jack Straw’s internal briefings?

It is possible, though, that Jack Straw will not be told the whole truth, for ministers were giving good reports to Parliament on the state of C-Nomis in 2006 when the project was failing.

A technical report on the project by Accenture in September 2008 said that C-Nomis “suffered from cost overruns, scope changes, delays, restructuring and insufficient governance … management lacked early warning of programme failure…”

The project’s main lessons

Accenture concluded in its report:

“At the centre of the programme history is a misunderstanding of the close relationship between business processes, and simplification of process, and technology. IT was seen as a tool to implement current processes with all their existing flaws”.

It transpired that the project team lacked the support from senior people to persuade business owners to streamline processes. As a result “conflicts were generally resolved by changing the project rather than adjusting business processes”.

When the project was first costed, wrong assumptions were made: mainly that working practices would be simplified to suit the IT. But this didn’t happen – partly because existing working practices were enshrined in law and policy documents.

The project was due to cost £234m but the latest estimate is £513m for a scheme that has been reduced in scope. Accenture has warned that costs may rise further.

Are parts of the Whitehall machine in chaos?

Press releases issued every month by Whitehall give the impression that the Government machine runs as smoothly as Big Ben. The Office of Government Commerce does regular assessments on dozens of “mission-critical” IT projects and programmes in the public sector. The OGC has thousands of online pages of advice on project management.

But it slipped out in 2003 that some project planning in government was all but non-existent.

Peter Gershon, then Chief Executive of the OGC, said in a speech:

“There are still far too many projects reviewed by Gateway teams where, frankly, project planning is little better than something on the back of a cigarette packet.”

Has much changed?

IT-related successes in government have been recognised in several NAO reports. But it’s the failures that people remember; and it is especially worrying when the NAO cannot establish precisely how millions of pounds has been spent on an IT-based project.

It’s a matter likely to be taken up by the Public Accounts Committee when it interviews civil servants on the C-Nomis project in the coming months.

PS: Members of the Public Accounts Committee should ask the Ministry of justice about why lessons weren’t learnt from the failure of the “Libra” criminal justice case management system for magistrates’ courts. The main lesson from Libra was that working practices should be simplified and unified before the IT is introduced. This didn’t happen with Libra or C-Nomis.

An NAO report on Libra’s failings was published in January 2003, about a year before the C-Nomis project was launched in 2004.

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Not directly familiar with this project, but the following point deserves further examination:

"many members of the project team were "expensive" contractors..."

Like most government IT projects, this project was undertaken by a massive consultancy. These consultancies typically charge their government clients at least twice the going rate for an experienced IT worker. For example, based on my own experience, the client could hire a permanent member of staff with a given skillset for, say, £150 per day, hire a contractor for £300 per day, or pay the Fat Consultancy £700 per day for somebody with the same skills.

The Fat Consultancy will often outsource the role to an offshore worker, who might be paid £50 per day in another country, or (until recently) onshore the foreign worker and pay them tax-free expenses of perhaps £60 per day while they are in the UK, on top of their offshore salary. Either way, the Fat Consultancy makes around £600 per day. Even if the FC has to hire a UK-based contractor, they are still pocketing up to £400 per day.

Now, if the government client hires a permanent employee, they are able retain the skills and familiarity with their system, and create a long term career opportunity for a UK-based IT worker. If the client takes on a UK-based contractor (directly), it costs them more, but there is no long term commitment, and they are still helping to develop skills and experience within the UK IT industry. In both cases, the UK-based worker also contributes to tax revenues and spending in the UK economy, and of course the cost to the government client is much lower.

But instead of these approaches, the government and its Fat Consultancy friends have insisted for years on pursuing the most expensive option, an approach that has eliminated career opportunities in the UK, eroded the UK IT skills base, reduced tax revenues and spending within the UK economy, and effectively used vast amounts of taxpayer's money to subsidise colossal profiteering by the Fat Consultancies and the export of skills, experience and opportunities from the UK IT industry to other countries. In some cases, government managers are actually forbidden from hiring individual staff directly and forced to use the Fat Consultancy staff, despite the ludicrous cost.

One potential solution is for government managers to be forced to take over responsibility for managing and staffing their projects directly, instead of constantly handing the keys to the Treasury over to the same Fat Consultancies that have failed to deliver on so many occasions in the past. Hire consultants based on their individual skills, not Fat Consultancies based on their friends in government. This would help to ensure that government managers can be held to account for their failures, reduce costs, and help to re-build a sustainable foundation for the UK IT industry in the long term.

And another thing... Computer Weekly reports today that the MoD payroll system cost £245m and has been described as "catastrophic" by MPs. Payroll is a classic example of a function that can actually be handled by a suitably configured off-the-shelf system. Why on earth did anybody have to pay EDS quarter of a billion pounds for a payroll system, catastrophic or otherwise?